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July 2012 Policy Study, Number 12-6

   

Lead, Follow, or Get Out of the Way: School Choice in Iowa

   

Iowa Scholarship Tax Credit Program

   

 

The most significant school choice program in Iowa (except for homeschooling) is the Scholarship Tax Credit program, which supports scholarships offered through the school tuition organizations (STOs).

 

First started in 2006, there are $7.5 million in tax credits available to STO donors. In 2011, all $7.5 million potential credits were claimed, with 11 of 12 STOs using all of the credits assigned to them.

 

A total of 10,800 students were served, receiving a total of almost $11 million in scholarships.[13] Since 2006, over $42.4 million has been awarded, in over 46,600 scholarships.

 

To be eligible, the parental income must be no more than 300 percent of the federal poverty level. Children in any county and any school district are eligible, unlike Pennsylvania, where only children from the lowest 15 percent of schools may participate. This is also unlike Arizona, which limits eligibility to children in low-performing schools.

 

Based on these figures, some low-income parents in Iowa have the potential ability to chose their children’s school and provide their children with the best education possible, in their opinion. But because of the tax credit and scholarship limits, not all parents have this option.

 

The last change to the Iowa program came in 2011, when the scholarship cap was increased to $8.75 million, starting this year. The additional $1.25 million in anticipated donations will allow another 1,100-1,500 children to receive scholarships per year. The Executive Director of the Iowa Advocates for Choice in Education anticipates that all $8.75 million in credits will be used. Unfortunately, the prohibition on donations from limited liability companies and S-corporations remains in place.[14]

 

This tax credit cap, compared to others such as Georgia’s $50 million and Florida and Pennsylvania’s $140 million, is relatively low, limiting the number of families who can participate.

 

Though donations exceed the tax credit cap each year, and individuals who donate above the Iowa limits can still take the Federal charitable donation deductions, just having a cap in place inherently limits the amounts. Those taxpayers for whom tax credits are important will choose to make the donations where it will benefit them the most, such as to the Iowa charitable foundations.

 

The following table outlines the history of the Iowa tax credits and donations made to the school tuition organizations and the scholarships awarded as a result.

 

   

 

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